IR35, Worker Status & Unlawful Deductions from Wages

Parties:	Appiah (C) v Tripod Partners Ltd (R) & Home Office (HO)
Jurisdiction:	Employment Tribunal
Main legal considerations:	IR35The ‘Deemed Employment Payment’Worker StatusS.13 ERA – Unlawful Deductions from Wages
Key Facts/ arguments:	1. C was engaged to carry out age assessments on people arriving in the UK unlawfully. 2. C was supplied via agency (Tripod) to the Home Office. 3. Previously worked on assignments outside IR35 & via umbrella companies. 4. HO determined assignment was inside IR35, using CEST. 5. C was given options of, PAYE, PSC with deemed employment payment, or umbrella. 6. C was provided with documents that referenced statutory deductions, specifically mentioning ee’s NI and income tax. 7. Contract provided to C’s PSC was not subject of negotiation or amendment. 8. C agreed rate of £58 per hour, accepted that ee’s NI & income tax was correctly deducted. 9. C argued deduction of er’s NI was an unlawful deduction from wages. 10. R argued: (a) C was not a worker and therefore ET had no jurisdiction, in the alternative: (b) Contract authorised the deduction, or (c) Statute authorised the deduction, or (d) Written consent for deduction was otherwise given by C 11. HO argued: That they did not pay C and therefore could not be liable for alleged unlawful deductions.
Judgment:	C qualified as a worker. Deductions were not authorised by statute, by contract or otherwise in writing. Case against HO dismissed. Case against R, well founded, in the sum of £36,826.65.

Commentary & Key Takeaways:

1. Not universally applicable:  While some of the commentary on this judgment has been typically incendiary, focusing on the fact that an individual with a PSC was found to be a worker, the impact of this judgment should not be overstated.  Ultimately, prior to starting the engagement, the parties determined that IR35 applied and operated the deemed employment payment calculation.  In most cases, where the parties determine that IR35 applies, the individual will opt for a non-PSC form of engagement.  Accordingly, the facts of this judgment are unlikely to be universally (or even close to universally) applicable.

• Jurisdictional tension:   A key takeaway from this judgment for our readers should be to ensure they do not approach a particular jurisdiction in isolation.  For example, when conducting an IR35 review one must keep in mind the potential employment law implications.  Arguing (as Tripod did in this matter) that an individual is not a worker for employment law purposes when the parties have already accepted that the key indicators for employment are present for tax purposes, while not impossible, was always going to be an uphill task. 

• Contractual/ payment chain integrity: The case against the HO was struck out by the tribunal in short order on the grounds that HO did not contract directly with C and did not pay anything to C.  As such, HO could not make unauthorised deductions from payments it was never obliged to make and did not make them.  This is a salient reminder of the importance of ensuring the contractual and payment chain are as set out in the contractual terms.  This ensures that only those parties that should be liable for any claims are liable.

• The importance of accurate terms:    Part of R’s argument that C did not qualify as a worker, notwithstanding the fact that information inputted in the CEST suggested employment, was that C provided services via a PSC and this was a B2B relationship.  R relied on the terms in place that required the PSC to invoice for the services and that referenced that C was not an employee.  This argument was dismissed by the tribunal on the grounds that, in reality, the PSC did not invoice but simply completed timesheets.  This allowed the tribunal to easily dismiss the terms based on a conflict between the terms and reality.  Furthermore, while the terms did state that C was not an employee, it did not address the issue of worker status directly.  It should be noted though, that even if it did, this would not have been enough to bring C outside of worker status.

• Different options, but same end result:    While C was offered a number of different engagement options, PSC (but with deemed employment payment), PAYE or umbrella this did not help assist R’s argument that C did not qualify as a worker.  This is because the various options did not alter the rights and obligations of C in terms of the work she did but were merely different payment options.  It is important that readers remember that if different engagement options are offered, on the basis that they confer different statuses, then the rights and obligations relevant to each option must be different both in writing and in practice.

• Neither statute nor the documents authorised the deduction of er’s:    While deductions from wages will not be unauthorised if they are permitted by statute, the tribunal found that the legislation that authorised the deduction of ee’s NI and income tax from C’s wages did not extend to er’s NI.  This was on the basis that er’s NI is not a statutory cost to be borne by C and therefore cannot be deducted from C by relying on statute.  In the alternative, R argued that the deduction of er’s NI was agreed in writing by C.  However, while the documents provided to C referenced quite clearly that ee’s NI and income tax would be deducted, any reference to er’s NI were references to er’s NI being paid by R rather than deducted from C by R.

In conclusion:    This case is a reminder that square pegs do not fit in round holes.  The parties determined that the assignment was caught by IR35.  In effect, this was a concession in the tax jurisdiction that the individual was employed.  This concession, when allied to the fact that, in practice, the rights and obligations were also consistent with employment, meant that this was always an uphill task for Tripod.  If you would like more information on this case or status in general, please do not hesitate to contact Mark Taylor by emailing marktaylor@chartergates.com.

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Disclaimer:  Chartergate Legal Services Ltd has drafted this article provide you a general overview of the relevant law and developments at the date of sending only.  This article is provided as a general overview and should be taken as such.  It is not a substitute for professional advice that is specific to your circumstances and should not be relied upon as such.